Idaho business tax incentive draws fire from employer, conservative group

To Jeff Sayer, former director of the Idaho Department of Commerce, news that Illinois human-resources services provider Paylocity had chosen Boise as home for its new office was proof that Idaho’s new business incentive program was expanding the state’s economy.

Paylocity promised in September to create 551 jobs paying an average annual wage of $46,200, beating the Ada County average of $43,000. Statewide, Idaho’s average wage of $38,300 ranks lower than every state except Mississippi, according the U.S. Bureau of Labor Statistics.

Using the Tax Reimbursement Incentive program, Idaho sweetened the deal for Paylocity by agreeing to refund $6.5 million in income, payroll and sales tax over 15 years. Reimbursement agreements are contingent upon companies meeting wage and job creation thresholds.

George Gersema, founder and CEO of Employers Resource in Boise, is unimpressed. When Gersema learned of the Paylocity tax break, he wanted to know why Idaho was making deals to bring a competitor of his to Boise.

“Not only does Paylocity get my tax dollars, now I have to compete with them for employees, since they do much of the same kind of work I do,” Gersema said. “Well, gee whiz, thank you, Legislature of the state of Idaho. Thank you very much.”

He found an ally in Wayne Hoffman, president of the Idaho Freedom Foundation, a nonprofit that aims to “fight big government on all levels,” according to its website, by advocating for transparency and cutting spending and taxes. The foundation also operates IdahoReporter.com, which first reported Gersema’s complaint.

Hoffman said the state assumes incentive recipients would not come to Idaho without tax breaks. But those companies may have expanded here anyway, he said, or would have been lured by lowered tax rates that would also benefit companies such as Employers Resource.

“Plenty of businesses move to Idaho minus any interaction with state officials at all,” Hoffman said.

Sayer, the program’s architect, said many site selectors dismiss states without incentive packages. To Sayer, the numbers speak for themselves.

“They prove we’re on to something, and that its an important tool,” he said.

Steve Cilley, owner of Boise human resources services company Ataraxis, said he supports the state’s efforts to bring Paylocity to Boise.

“You bring 500 people into the valley, and they bring their families,” Cilley said. “Overall, it’s a great thing for the valley. It’s capitalism.”

Nine companies have received incentive packages to expand or move to the Treasure Valley. Clark Krause, executive director of the Boise Valley Economic Partnership, said 30 companies made site visits to the valley working with his economic development office. That was a 150 percent to 200 percent increase from most years going back to 2010, Krause said.

The incentive instantly became Idaho and the Valley’s strongest recruiting tool, he said.

“It takes tools like this to compete in economic development,” he said. “Without them, you get the low-income jobs. We’re now competing on a much higher level not only for quantity, but for quality.”

BIG VS. LITTLE

Employers Resource has hired two or three employees each year on average since its founding in 1985, growing to about 100 employees working in offices in eight states, including 30 in Boise.

That’s strong growth for a small company, Gersema said, but it could never create the minimum 50 jobs required for incentive applicants located in urban areas.

“Small companies don’t create that number of jobs at the drop of a hat,” Gersema said. “The incentive structure is tilted toward the big at the exclusion of the small.”

Sayer said the state tried to create an incentive program that would not reward growth that would have happened anyway. The incentive targets companies that can inject millions into the state economy through payroll, capital investments and tax revenue that Idaho could not attract before the tax break, he said.

“If we are going to reward growth that’s coming anyways, it becomes a giveaway,” Sayer said. “We designed this to reward projects that are competitive, that we wouldn’t get otherwise.”

URBAN VS. RURAL

To encourage growth in small communities, the incentive program requires companies to create just 20 jobs in rural areas, compared with 50 in larger cities. The program has seen some success in rural areas, Sayer said, with cheese and whey-product maker Glanbia expanding in Gooding and Twin Falls, skiing company Aspen Snowmass building a hotel in Ketchum, and Sandpoint tech company Kochava planning to hire 50 employee over five years.

But Sayer said he has heard complaints from small business owners in rural communities — cities with less than 25,000 residents or unincorporated areas — that the 20-employee minimum is too high. He said his successor, former Commerce Chief Operating Officer Megan Ronk, could ask the Legislature to lower the threshold if it proves to be unrealistic.

The state could also raise the wage requirement to 125 percent of the county average — like Utah’s incentive program, which served as the model for the Idaho incentive — if officials decide too many companies are receiving incentives, Sayer said.

“The rural job requirement and the wage threshold are the two levers we control if we want to slow down or speed up,” Sayer said.

Attracting companies to rural areas has an unintended consequence, Hoffman said. Existing companies may lose managers to incoming companies even if they aren’t competitors, or they may struggle to match salaries offered by companies that can subsidize wages with incentive money.

Hoffman said those dynamics are at play in the Magic Valley, where Glanbia received an $877,000 incentive to expand its whey production, and materials fabricator Fabri-Kal received $775,000 incentive for its new Burley operation.

“Businesses are paying a hidden tax, because they have to put more into salaries to retain employees,” Hoffman said. “I’ve heard that story over and over.”

HELPING THE COMPETITION?

While Paylocity offers software that allows employers to handle their own human relations tasks in-house, Employers Resource and Ataraxis perform that work for clients under contract.

Gersema says 50 to 60 percent of his business overlaps with Paylocity. That Paylocity will soon be in Boise threatens Gersema’s customer base, since both companies serve clients across the nation, he said.

“Even if they stayed in Chicago, they received a $6.5 million benefit from the state of Idaho, which is egregious given that my tax dollars went to that subsidy,” he said.

Cilley, the Ataraxis CEO, said he would not be concerned about Paylocity getting the incentive money even if it was a direct competitor.

“It’s a big market,” Cilley said. “I’m not a believer in scarcity. There’s more than enough for everybody.”

Sayer said the state gives applications lower scores when the incoming company would compete with businesses already in the state. This year, a retailer that applied for the incentive would have competed for Treasure Valley customers with a business already here. As a result, the state offered a low-value incentive package, and the retailer took its operation elsewhere, Sayer said.

“Paylocity was already a competitor on a national level,” Sayer said. “What gets our antennae up is when a company is looking to come here and expand with Idaho customers.”

This story was originally published January 8, 2016 at 7:46 PM with the headline "Idaho business tax incentive draws fire from employer, conservative group."